The Long Divergence:How Islamic Law Held Back the Middle East

Author: Timur Kuran

Princeton University Press, 2011

Timur Kuran

Timur Kuran is professor of economics and political science and Gorter Family Professor of Islamic Studies at Duke University.

According to Kuran, key economic institutions of the Islamic Middle East were intertwined with Islam's holy law. Temporal and spiritual matters were not sharply divided, and the Holy Koran encouraged commerce and supported personal enrichment.

In the 900s, trade everywhere was essentially person to person. There were investors who would finance a merchant known to him as trustworthy. And it was around this time that "Islamic partnership law assumed its classical form." Islam developed a law of contracts that was sophisticated for the time, facilitating the pooling of resources across family lines, and the Islamic partnerships stimulated commerce and helped merchants carry Islam to far corners of the globe.

Around the year 1000, profits from money lending was as maligned among Muslims as it was among Europe's Christians, but Muslims interpreted the Koran as forbidding only certain kinds of lending, and Islamic law remained well suited to the Medieval economy.

Muslims were as advanced economically as the Europeans. But, as early as the 1200s, Muslim countries began to fall behind the West – as a new form of corporation began among Europeans.

Islam's inheritance system provided mandatory inheritance shares to all sons and daughters, and Islamic polygamy enabled the wealthiest merchants to have unusually numerous heirs. This diffusion of wealth would "eventually incapacitate Muslim merchants in their dealings with the West, in third markets, and even at home."

Wealth in the West was becoming more concentrated. In the late 1500s, European commercial enterprises started to organize as corporations, stimulated by the new global maritime trade. By the 1700s, this revolution in economic organization was acompanied by an explosive growth in global commerce, including trade between the Middle East and Western Europe.

Westerners formed "lasting enterprises with tens, hundreds, and even thousands of shareholders." In the 1800s, "Westerners had access to commercial banks that could channel capital mobilized from the masses into large-scale productive ventures."

According to Kuran,
"Major changes in the scale and scope of Egyptian commerce had to await the 1850s." The first two successful banks in the Middle East, the Bank of Egypt and the Ottoman Bank, were founded in the 1850s, and with each the "capital and organization template came from abroad." The first predominately Muslim-owned joint-stock company of the Ottoman Empire was founded in 1851. This was a marine transportation company, Sirket-i Hayriye, in Instanbul.

There was economic growth among the Muslims but not on the scale taking place in the West. There were commercial contacts between the Muslim world and the West, involving mostly the Ottoman Empire's Greek and Armenian minorities – Christians – and to a lesser extent the empire's Jews. By the end of the 1800s "the Ottoman Empire's Muslim merchants were decidedly secondary players in its external trade with Europe."

According to Kuran, the Middle East succumbed to European Imperialism because of its lesser economic development rather than the Middle East being lesser developed because of that imperialism. (pp 19-21)

Trading opportunities with the West were increasingly lucrative, and there were attitudinal changes. In the early 1900s, Muslims adopted the legal framework for corporations – without the previous qualms about organizations being unlimited in duration. The Muslim world acquired stock markets in which millions of shares change hands daily. But because of the long delay, through the 1900s and into the 21st century, university systems and municipalities lacked the benefit of centuries of experience. And in place of private institutional development, state-led development strategies developed that suppressed individual initiative. This gave the Muslim world "bloated bureaucracies and, in many places, government policies and social norms [that are] harmful to creativity."

Nowadays, according to Kuran, "bloated state bureaucracies and, in many places, government policies and social norms harmful to creativity" remain, and with a few exceptions, countries of the region remain uncompetitive. He adds that with few exceptions, "their civil societies are too poorly organized, and too beaten down, to provide the political checks and balances essential to sustained democratic rule." He adds:

If the regions's autocratic regimes were magically to fall, the development of strong rival sectors and civil societies could take decades. Trust in strangers and in organizations, essential to impersonal exchange, is low by today's global standards; this stands as an obstacle to efficient economic cooperation.

Kuran complains that

...the role of classical Islamic law in blocking organizational modernization and stultifying Middle Eastern, and particularly Muslim, enterprise is hardly understood. This situation limits the rhetorical toolkit of Middle Eastern proponents of globalization and modernization. It also sustains sterile debates about the virtues of embracing Islam for solutions to poverty, mismanagement, and powerlessness.

He writes that in Muslim countries it is possible that key economic institutions "can be improved, recombined, and applied to new domains creatively without opposing Islam as a religion, or even dealing with it."